Gross margin
Gross margin is the share of a job's price left after the direct costs of doing it: (revenue minus job costs) divided by revenue.
Also called
- job margin
- gross profit margin
- margin
Gross margin is measured on the price, not on the cost. A 50% margin means half of each dollar is left after labor, chemicals and materials, to pay for the office, trucks, insurance, marketing and profit.
Margin and markup are easy to confuse. Marking costs up by 50% gives only a 33% margin. To hit a target margin, divide the cost by (1 minus the margin).
Formula
gross margin = (revenue − job costs) ÷ revenue price for a target margin = cost ÷ (1 − target margin) markup = (price − cost) ÷ cost
Example
A job costs $300. At a 50% target margin the price is $300 ÷ 0.5 = $600. A 50% markup would give $450, which is only a 33% margin.
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